First Solar Stumbles Post-Earnings, Analysts Mixed But Mostly Neutral

Shares of First Solar (FSLR) were falling 2.6% in recent trading following the company’s surprisefirst-quarter loss.

Read what analysts are saying below and also check out theround-up of opinions on SunPower (SPWR).

Augira�s Hari Chandra Polavarapu maintained a Buy rating and $53 price target:

We see First Solar’s existing 2.7GW (AC) project pipeline providing it with sufficient earnings cushion/flexibility to navigate the current industry dislocation, and believe investor focus on module dynamics is increasingly irrelevant to First Solar, and more so as it moves into non-subsidized utility scale solar power project paradigm. Utility scale solar offers cost, scale, and efficiency advantages and delivers a need based solution in several key geographies of the world. We believe investor cynicism on First Solar’s business model and apathy towards its stock is primarily due to business model/valuation illiteracy (forget opinions, and when in doubt check cash flows).

Canaccord�s Jonathan Dorsheimer reiterated a Hold rating and lowered his price target $2 to $20:

First Solar had been touted for years, having made constant and significant operational accomplishments in quite a short time. However the latest warranty expenses relating to a prior �manufacturing excursion� raises the question as to whether these improvements were too good to be true and if future problems from its break-neck pace of innovation may surface down the road. We are not yet comfortable with this issue from a financial liability standpoint (magnified by the increasing working capital burden the systems business is placing on the balance sheet) We suspect potential project investors may require compensation for this risk in the form of lower pricing, higher insurance, etc. all of which make already thin-margin products less competitive. Additionally the company is still in the early stages of assessing the effects of higher panel degradation in hot climates, which could also hinder its ability to win new business as well.

Caris & Co�s Ben Pang reiterated his 3*/Average rating and $20 price target:

FSLR missed F1Q revenue and EPS expectations. However, the negative impact was offset by FSLR raising full year EPS guidance. The severe restructuring actions are lowering costs and boosting near term margins. FSLR also introduced the internal promotion of James Hughes to CEO after a long search. We think Hughes background in the energy field matches well with FSLR�s long term strategy. The company provided more details on their five year plan to transition to more sustainable markets. However, we did not find anything new or compelling in the strategy and we will continue to remain on the sidelines.

Citi�s Timothy Arcuri maintained a Neutral rating and $28.50 price target:

Huge CQ1 EPS miss highlights what are now impossible-to-predict quarterly results. That said, not much really changed as FSLR raised 2012 EPS due solely to cost savings from recent restructuring. Given how much stock is down, this alone should help in the near-term. Noteworthy positives included estimated EPC costs of ~$1.15/W (incl. development) � a solid number on decent volume (we think ~150MW). This adds credibility to FSLR�s claims over recent Qs of big improvements in BoS � key for the company as it relies much more heavily on the systems business. On the flipside, more warranty provisions only further questions around module performance. With the stock at these levels, we think the only question that really matters is whether FSLR can start to again add to its project pipeline (it still sounds reticent to embrace a �module agnostic� strategy). We think it has been short-listed on at least two sizable PPAs and we would view any signs of a win as a major positive catalyst for the shares. C2012 from $5.47 to $5.93 (far higher than Street but our numbers include ~$0.90-1.00 in cash from Sunlight), C2013 from $3.50 to $5.75 just on pull-forward of one-time cash flows from systems pipeline, C2014 now $3.73 (Street $3.67).

Credit Suisse�s S. Kumar maintained a Neutral rating and $20 price target:

For the first time in a while, FSLR reported a quarter where estimates were raised for the year; there were no surprises on the warranty front; and there were generally more positives than negatives. To be sure, core questions on competitiveness and valuation still need to be addressed. But the company seems to have found some firm ground with near term estimates that gives a bit of breathing room to demonstrate that it can execute to its new 5-year goals on the project business and on improvements in panel manufacturing. We are bumping up our estimates to the new guidance mid-point at $4.25

Cowen & Co.�s Robert Stone maintained a Neutral rating:

The Q1 loss of 8c (ex. charges) was well below St. 59c on a 27%revenue shortfall and lower margins. Raised EPS guidance hinges on cost cutting, but we think third-party module sales are at risk. The five-year plan looks mostly theoretical. Systems backlog is likely to decline all year. Margins on new projects are expected to shrink amid stiff competition and new markets likely require a profit split with local partners.

Deutsche Bank�s Vishal Shah reiterated a Hold rating and $17 price target:

We believe management is taking the right steps in providing a 5 year strategic plan with focus on utility scale markets where the company currently anticipates limited competition from c-Si suppliers. But we note that it would take a long time for these markets to develop, especially as risk-averse utility customers adopt a wait and see approach. We expect strategic JV announcements to act as next headline catalysts, but with meaningful financial impact unlikely until 2014-15 timeframe at the earliest, it may be too early to step in.

Jefferies� Jesse Pichel maintained a Hold rating with a $21 price target, down from $26:

We believe FSLR�s release of a new 5 year plan lacks credibility in light of its decision to pull out of the European market which still represents the majority of demand, and no product to address the more sustainable and easy to finance rooftop residential market. We also believe the company�s 2012 EPS guidance raise is overly aggressive and maintain our negatively biased HOLD.

Maxim�s Aaron Chew reiterated a Sell rating and $9 price target:

While 1Q EPS (x-$443m in charges) was even worse than our below-consensus estimate on revenue/margin downside, EPS guidance was bumped up to ~$4.25 from ~$4.00 on restructuring savings. Still, with (1) the increase driven by 1x savings, not improvement in core economics, (2) EPS still at risk on margins, (3) net debt now positive, and (4) unsubsidized system prices yielding normalized EPS of $1.00 in 2016, we continue to see risk to the downside and value FSLR at no more than $800m, or $9/share.

Needham�s Y. Edwin Mok maintained a Hold rating:

FSLR reported its first non-GAAP losses since 2006 on weak 1Q12 revenue. While the company raised 2012 EPS guidance on better cost controls and reiterated full year revenue guidance, we are less confident on the back-end loaded target. We believe FSLR will completely exit 3rd party module business by 2013, resulting in lower than expected sales and earnings. As FSLR continues to shift its business to target the unsubsidized market, we find the lack of earnings growth implied by the 5-year plan unattractive. If the company achieves its goals, we acknowledge the stock may carry a higher valuation than today; however, we would expect such a transformation to be long and likely painful.

Wunderlich�s Theodore O�Neill reiterated his Sell rating and $14 price target:

First Solar (FSLR) announced 1Q12 results last night which were a bit of a disappointment. The company, and the rest of the industry is trapped in a race to the bottom. As FSLR is faced with declining prices and oversupply it decides to restructure in order to retain some profits but when it does so at the same time as all its competitors, it becomes a race to the bottom. The industry is trapped in a cycle of lower prices to gain share and restructure to preserve earnings that very much looks like the instructions on the shampoo bottle. When it gets to the point where the restructuring starts, that usually signals the end is coming.